PricewaterhouseCoopers LLP fined £15 million by Financial Conduct Authority

Posted to News on Tuesday, August 27, 2024 Share:

THE FINANCIAL Conduct Authority (FCA) has fined PricewaterhouseCoopers LLP the sum of £15 million for failing to report to the regulator its belief that London Capital & Finance plc might have been involved in fraudulent activity. This is the first time that the FCA has fined a specialist auditing firm.

PricewaterhouseCoopers LLP encountered significant issues throughout its 2016 audit of London Capital & Finance plc. A senior individual at London Capital & Finance plc acted aggressively towards auditors, while the firm also provided PricewaterhouseCoopers LLP with “inaccurate and misleading” information.

PricewaterhouseCoopers LLP found the audit very complex and the process took considerably longer to complete than anticipated. London Capital & Finance plc’s actions, and PricewaterhouseCoopers LLP’s own work on the audit, led the latter to suspect that London Capital & Finance plc might be involved in fraudulent activity.

PricewaterhouseCoopers LLP was duty bound to report those suspicions to the FCA as soon as possible, but failed to do so.

Accurate accounts

Eventually, PricewaterhouseCoopers LLP satisfied itself that London Capital & Finance plc’s 2016 accounts were accurate. Whether or not its suspicions remained, it still had an obligation to report its previous concerns to the FCA.

London Capital & Finance plc went into administration in January 2019 after the FCA ordered the firm to withdraw misleading promotional material for the sale of mini-bonds. Thousands of investors were misled because they were not given the full picture about the risks of the product.

The Serious Fraud Office has an open criminal investigation in place into the failure of London Capital & Finance plc.

Central role

Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: “Auditors have a central role to play in keeping our markets clean. They have privileged access to information and they’re required by law to report suspicions of fraud to the FCA.”

Chambers continued: “There were a number of red flags that led PricewaterhouseCoopers LLP to suspect fraud. They should have acted on them immediately. Their failure to do so deprived the FCA of potentially vital information.”

The Financial Services Compensation Scheme has paid out £57.6 million to eligible bondholders who lost money when London Capital & Finance plc collapsed. The Government has also paid £115 million to eligible bondholders through a ‘one-off’ scheme which is now closed.

The work of London Capital & Finance plc’s administrators to recover creditors’ funds remains ongoing.